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Pension problems: Mis-selling, mis-calculating and missing out

10 December 2008 / by Rebecca Sargent

Pensioners are suffering at the hands of the credit crunch, a host of experts have suggested, after the economic downturn delivers one blow to pension funds after another.

Just last week the Financial Services Authority (FSA) highlighted one plight faced by pensioners as it condemned yet another pension mis-selling scandal.

According to the FSA, thousands of pensioners have been duped into transferring their pension funds into SIPPs (Self Invested Personal Pension) and personal pensions to the detriment of their funds.

Commenting, Dan Waters, the FSA's director of retail policy said: "We are taking targeted action in relation to firms giving pension switching advice to deal with the risk of unsuitable advice on past and future sales, and to press all firms to meet the standards we expect."

And, as pensioners face up to rapidly falling savings rates, annuity rates are also facing a downturn. According to Nigel Callaghan at Hargreaves Lansdown, annuity rates from four of the UK's leading companies fell by up to 3.5 per cent last week.

"For those pension investors who have decided to buy an annuity, now may be a good time to act, rather than wait to perhaps see rates slide downwards in the coming months.

"Once the annuity has been purchased, the particular rate is fixed for the rest of the investor's life, irrespective of what happens in the future," Mr Callaghan said.

And, in further bad news for pensioners, it has emerged that thousands of pensioners on low incomes are suffering at the hands of the Government's mis-calculations.

Pension Credits, which are intended to boost pensioner's incomes, base a person's eligibility on the premise that the individual's savings earn an average interest rate of more than 10 per cent, which, given the current financial climate, is highly unlikely.

When assessing eligibility for Pension Credits, the Government does not enquire about interest applied to a person's savings but adds £1 a week for every £500 a person has saved.

As savings accounts stand, rates have fallen from highs of seven per cent to lows of just one per cent, already harming pensioners' incomes, even before such inaccurate means testing is applied to benefits.

Such means-testing has been slammed as a 'demeaning process' by Dot Gibson, Vice President of the National Pensioners Convention, said: "It's time the Government realised that pensioners and means-testing simply don't mix. What older people want is an end to means-testing and a decent state pension which is set above the poverty level of £151 a week and rises each year in line with earnings."

As the Pension Credit system stands, as much as £1.3billion remains unclaimed when there are 1.8 million pensioners living below the official poverty level.